Top Panel Submits Recommendations on Conflict of Interest of SEBI Members and Officials

Contents

New Legal Framework for Conflict of Interest and Disclosures Chairman and Members to Be Classified as ‘Insiders’ Under SEBI Rules Mandatory Disclosure of Assets, Liabilities, and Financial Interests Investment Restrictions and Ethical Oversight Creation of Office of Ethics and Digital Repository Gift Policy and Whistleblower Protection Framework Legal and Governance Implications Conclusion

In a move aimed at bolstering transparency and accountability, a High-Level Committee (HLC) set up by the Securities and Exchange Board of India (SEBI) has submitted a comprehensive set of recommendations to address conflicts of interest, disclosure norms, and ethical conduct of SEBI’s members and officials. The report, submitted on November 12, outlines a framework to strengthen integrity within the regulatory ecosystem by introducing legally enforceable regulations in place of voluntary codes.

The panel was chaired by Pratyush Sinha, retired IAS officer and former Chief Vigilance Commissioner, and included inputs from legal experts, market infrastructure institutions (MIIs), independent professionals, and other stakeholders.

New Legal Framework for Conflict of Interest and Disclosures

The committee has recommended that SEBI introduce a separate set of regulations specifically addressing disclosures and conflict of interest, replacing the current internal code which is largely voluntary. The new framework would make compliance legally binding and enforceable, bringing SEBI’s governance standards in line with global best practices.

“This would make it legally enforceable, unlike the current Code, which is more akin to voluntary adoption,” the committee stated in its report.

The new rules would apply to the SEBI Chairman, Whole-Time Members (WTMs), Part-Time Members (PTMs), and employees, as well as to lateral entrants such as external professionals joining the regulator on a contractual basis.

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Chairman and Members to Be Classified as ‘Insiders’ Under SEBI Rules

One of the most significant recommendations is the inclusion of SEBI’s top officials under the definition of “insider” as per the SEBI (Prohibition of Insider Trading) Regulations, 2015. This would ensure that senior regulatory personnel are held to the same standards as market participants when it comes to handling Unpublished Price Sensitive Information (UPSI).

“The Chairman and the Whole-time Members of SEBI should be brought within the definition of ‘insider’ for the purpose of insider trading regulations,” the panel suggested.

This move, experts believe, would enhance investor confidence by demonstrating that SEBI’s leadership operates under the same regulatory discipline that it enforces in the market.

Mandatory Disclosure of Assets, Liabilities, and Financial Interests

The panel has proposed stringent disclosure norms for SEBI board members and employees. Under the new system, all personnel would be required to make initial, annual, event-based, and exit disclosures related to their assets, liabilities, trading activities, and family relationships.

For top executives such as the Chairman, WTMs, and officers at the level of Chief General Manager (CGM) and above, these disclosures will be made publicly available. However, Part-Time Members—who do not participate in SEBI’s day-to-day regulatory operations—may be exempted from public disclosure requirements.

Additionally, candidates applying for SEBI leadership or senior roles will need to declare actual, potential, or perceived conflicts of interest—both financial and non-financial—at the time of application.

Investment Restrictions and Ethical Oversight

The committee has recommended that SEBI officials and employees be barred from making direct investments in securities of entities regulated by SEBI, though they may invest through professionally managed pooled funds, such as mutual funds or Alternative Investment Funds (AIFs).

To prevent concentration risks, investments in any single intermediary’s fund should not exceed 25% of the employee’s total portfolio.

The restrictions will also apply to the spouse and financially dependent relatives of SEBI officials, regardless of their individual financial independence. Exceptions are allowed for employee stock options (ESOPs) or unlisted shares held as part of private business or family investments.

For existing investments, the panel suggested that SEBI leadership choose one of the following four options upon assuming office:

Liquidate existing holdings.
Freeze investments.
Sell under a pre-approved trading plan.
Sell with prior approval but without a pre-defined plan.

“These measures are essential to eliminate any potential or perceived bias that could arise from personal financial interests,” the report emphasized.

Creation of Office of Ethics and Digital Repository

To institutionalize ethical governance, the committee recommended setting up two new oversight bodies — the Office of Ethics and Compliance (OEC) and the Oversight Committee on Ethics and Compliance (OCEC).

These bodies will be responsible for monitoring disclosures, addressing conflicts of interest, and maintaining a digital repository of all financial and non-financial declarations. The system would also record recusals from decision-making and ensure transparency by publishing summaries in SEBI’s annual report.

“A digital repository of disclosures will help SEBI proactively manage perceived conflicts and uphold institutional integrity,” the panel noted.

Gift Policy and Whistleblower Protection Framework

In a bid to eliminate any perception of undue influence, the committee proposed a blanket prohibition on accepting gifts—directly or indirectly—by SEBI’s Chairman and Whole-Time Members from entities or individuals they engage with in an official capacity. Small, symbolic gifts received publicly or during cultural or ceremonial occasions, however, may be exempt.

The panel also advised SEBI to introduce a “secure, confidential, and anonymous whistleblower system” to allow employees, board members, or even external stakeholders to report instances of conflict of interest or ethical violations without fear of reprisal.

This system, modeled on international regulatory best practices, aims to encourage transparency and strengthen institutional credibility.

Legal and Governance Implications

If accepted by the SEBI Board, the proposed framework will mark a significant shift in how India’s capital market regulator enforces ethical accountability. It will not only increase public trust in SEBI’s independence but also align it with the standards followed by global regulatory bodies such as the U.S. SEC and the UK’s FCA.

Analysts believe the new framework will also reinforce the regulator’s credibility among foreign investors, who have often cited governance transparency as a key determinant in their investment decisions.

“By mandating disclosure and conflict management at the highest levels, SEBI is setting a new benchmark for institutional integrity in financial regulation,” said a Mumbai-based governance expert.

Conclusion

The High-Level Committee’s recommendations represent a landmark step toward strengthening ethical governance and minimizing conflicts of interest within SEBI. If implemented, these reforms will enhance the regulator’s accountability, safeguard market integrity, and further bolster investor confidence in India’s capital markets.

As SEBI prepares to review and adopt these recommendations, the move signals a broader shift toward institutional transparency, ensuring that the watchdog itself remains beyond reproach in the world’s fastest-growing major economy.